Econ 301 Final Exam

Senior citizens have a more elastic demand for movies than ordinary citizens

Cinemas sometimes give senior citizens discounts. What is the possible privately motivated purpose for them to do so?

$92

Consider a monopoly where the inverse demand for its product is given by P = 50 − 2Q. Total costs for this monopolist are estimated to be C(Q) = 100 + 2Q + Q 2. At the profit-maximizing combination of output and price, monopoly profit is:

Higher costs

For given input prices, isocosts farther from the origin are associated with:

3

Given the production function Q = min{4K, 3L}, what is the average product of labor when 8 units of capital and 4 units of labor are used?

$298.75 million

A manager is attempting to assess the impact of COVID-19 recession on expected profitability. The manager believes there is a 75 percent chance the recession will end in six months and profits will return to $400 million. However, there is a 25 percent chance the recession will not end in six months, resulting in a $5 million loss. The expected profits over the next six months are:

$60 per unit

A monopoly has two production plants with cost functions MC1 = 0.4Q1 and MC2 = 0.2Q2. The demand it faces is Q = 480 − 5P. What is the profit-maximizing price?

Consumers are risk averse, hence new firms charge lower prices to attract customers

An incumbent usually charges a higher price than a new entrant does. Which of the following is a plausible reason for this observation?

The same level of output

An isoquant defines the combination of inputs that yield the producer:

Vertical

An own price elasticity of zero corresponds to a demand curve that is:

describes a set of circumstances in which no player can improve her payoff by unilaterally changing her own strategy, given the other players' strategies.

A Nash equilibrium is a condition that:

1/3

A monopolistically competitive firm estimates that the own price elasticity of demand for its product is -4.5 and its advertising elasticity of demand is 1.5. What is the optimal advertising-to-sales ratio.

$50

Suppose the cost function is C(Q) = 50 + Q − 10Q 2 + 2Q 3. What are the fixed costs?

Price discrimination or peak-load pricing

Broadway theater sells weekday show tickets at a lower price than for a weekend show. This is an example of:

$4,000

Compute the present value of a preferred stock that pays, in perpetuity, an annual cash flow of $200 at an annual interest rate of 5 percent.

$35 and 3 units

Consider a market characterized by the following demand and supply conditions: P X = 50 - 5Q X and P X = 32 + Q X. The equilibrium price and quantity are, respectively,

$34

Consider a monopoly where the inverse demand for its product is given by P = 50 − 2Q. Total costs for this monopolist are estimated to be C(Q) = 100 + 2Q +Q 2. The profit-maximizing price is:

Godrickporter increases its advertising budget, but Star Connections does not.

Godrickporter and Star Connections are the only two airport shuttle and limousine rental service companies in the mid-sized town of Godrick Hollow. Each firm must decide on whether to increase its advertising spending to compete for customers. What is the Nash equilibrium in this game?

Relatively elastic

If 1% change in price causes more than 1% change quantity demanded for a product, the own price elasticity of demand is:

The firm should decrease production

If a perfectly competitive firm is producing 500 units of output and the marginal revenue from producing the 500th unit of output is $3 and the marginal cost is $3.50, which of the following is true?

A reduction in total revenue

If the absolute value of the own price elasticity of steak is 1.4, an increase in price will lead to:

100-4Q

If the inverse demand function for a monopoly's product is p=100-2Q, then the firm's marginal revenue function is

Less labor and more capital

If the marginal product per dollar spent on capital is more than the marginal product per dollar spent on labor, then in order to minimize costs the firm should use:

(4,4)

If this one-shot game is repeated 100 times, the Nash equilibrium payoffs of the players will be ________ each period.

Earn zero economic profit

In the long run, firms in a competitive market

The minimum point of the average total cost curve

In the short run, the marginal cost curve crosses the average total cost curve at:

A normal good

Income elasticity greater than zero tells us that the good is:

Exceeds wage

It is profitable to hire units of labor as long as the value marginal product of labor:

continue to search for a lower price since the expected benefit of an additional search is $20, which exceeds his per-unit search costs.

Joe's search costs are $5 per search. He wants to buy a video player for his wife for Christmas, and the lowest price he's found so far is $300. Joe thinks 80 percent of the stores charge $300 for video players and 20 percent charge $200. Joe's optimal decision is to:

10 < P < 50; Q = 80, Pi = $1,600; CS = $0.

Suppose that the demand for a monopolist's product is estimated to be Qd = 100 − 2P and its total costs are C(Q) = 10Q. Under first-degree price discrimination, the optimal price(s), number of total units exchanged, profit, and consumer surplus are:

$1,010

Suppose the cost function is C(Q) = 50 + Q − 10Q 2 + 2Q 3. What is the variable cost of producing 10 units?

Complement for good y and an inferior good

Suppose the demand for X is given by Q x d = 100 - 2P X - 4P Y - 10M + 2A, where P X represents the price of good X, P Y is the price of good Y, M is income and A is the amount of advertising on good X. Based on this information, we know that good X is a

Elastic

Suppose the demand for a product is lnQ x d = 12 − 3 ln P x. Then product x is:

A normal good

Suppose the demand for good x is ln Q x d = 21 − 0.8 ln P x − 1.6 ln P y + 6.2 ln M + 0.4 ln A x. Then we know good x is:

Diseconomies of scale

Suppose the long-run average cost curve is U-shaped. When LRAC is in the increasing stage, there exist:

Decrease by 5 percent

Suppose the own price elasticity of demand for good X is −0.5, and the price of good X increases by 10 percent. We would expect the quantity demanded of good X to:

4

Suppose the production function is given by Q = 3K + 4L. What is the marginal product of labor when 5 units of capital and 10 units of labor are employed?

25

Suppose this one-shot game is infinitely repeated and the interest rate is 10%. If firm 1 deviates from a trigger strategy that is employed by both firms to support a high price, what is the present value of firm 1's payoff from cheating?

55

Suppose this one-shot game is infinitely repeated and the interest rate is 10%. What is the present value of firm 1's payoff from sticking to the collusive outcome?

S1 and T1

The figure presents information for a one-shot game. What are dominant strategies for firm 1 and firm 2 respectively?

Char a single price of $300 for the bundle of PowerPoint, Excel, and Word

The following table contains different consumers' values for three software titles: PowerPoint, Excel, and Word. Suppose there are 100 consumers of each type. It costs Microsoft $5 to produce each piece of software. If Microsoft wants to devise a pricing strategy that is incentive compatible between consumer types and will maximize its profit, then it should:

Lies below the demand curve

The monopolist's marginal revenue curve

Have incentives to behave opportunistically

The problem with spot exchange in the presence of specific assets is that both parties:

Both customer and competitor information about price

The purpose of randomized pricing is to reduce:

Two-part pricing and block pricing

What group of policies aims at extracting all consumer surplus?

It is a way for Amazon to give money back to its customers

What is NOT a reason why Amazon hosts Prime Day sales every year?

Hourly wages are cheaper than piece rates and thus can save money for the manager

What is NOT a reason why secretaries usually are paid on an hourly wage instead of piece rates or a percentage of the firm's profits?

a game in which players act in rational, self-interested ways that leave everyone worse off

What is a prisoner's dilemma?

Reputation

What is an outside incentive that forces managers to put forth maximal effort?

Managers should only be interested in a counting profits.

What is incorrect about managers?

Barriers to entry

What is not a characteristic of monopolistic competition

There are only one or two sellers

What is not a characteristics of a competitive market?

P>MC

What is true under monopoly?

All of the statements associated with this question are correct

What type of compensation method works by performance bonus?

Elastic

When marginal revenue is positive, demand is:

The Consumers are sincere in revealing their true natures

Which of the following is NOT a condition for a firm to engage in third-degree price discrimination? A.Consumers are partitioned into two or more types, with one type having a more elastic demand than the other. B.The firm has a means of identifying consumer types. C.The consumers are sincere in revealing their true natures. D.There is no resale market for the good.

Given another player's strategy, no player can improve her welfare by unilaterally changing her strategy

Which of the following is a correct statement about a Nash equilibrium in a two-player game?

10

You are a manager in a perfectly competitive market. The price is $14. Your total cost curve is C(Q) = 10 + 4Q + 0.5Q 2. What level of output should you produce in the short run?

Should use more K and less L to minimize cost

You are an efficiency expert hired by a manufacturing firm that uses capital (K) and labor (L) as inputs. The firm produces and sells a given output. If wage rate w = $40, rental rate r = $100, MPL = 4, and MPK = 40, the firm:

$4

You are the manager of a Mom-and-Pop store that can buy milk from a supplier at $3.00 per gallon. If you believe you have some market power and the elasticity of demand for milk by customers at your store is −4, then your profit-maximizing price is:

10

You are the manager of a firm that sells its product in a competitive market at a price of $60. Your firm's cost function is C = 33 + 3Q 2. The profit-maximizing output for your firm is:

10

You are the manager of a firm that sells its product in a competitive market at a price of $60. Your firm's cost function is C = 50 + 3Q 2. The profit-maximizing output for your firm is:

Reduced

A consumer spends more time searching for a good when her reservation price is:

Decrease

A decrease in the marginal benefit arising from a specialized investment will cause the optimal contract length to:

$90

A firm with market power has an individual consumer demand of Q = 20 − 4P and costs of C = 4Q. What is optimal price to charge for a block of 20 units?

$0.5

A local video store estimates its average customer's demand per year is Q = 7 − 2P, and it knows the marginal cost of each rental is $0.5. How much should the store charge for each rental if it engages in optimal two-part pricing?

Infinite

Demand is perfectly elastic when the absolute value of the own price elasticity of demand is:

Q 1 = 60; Q 2 = 120

A monopoly has two production plants with cost functions MC1 = 0.4Q1 and MC2 = 0.2Q2.The demand it faces is Q = 480 − 5P. What is the profit-maximizing level of output?

Vertical

A price elasticity of zero corresponds to a demand curve that is:

A strategy profile that is a Nash equilibrium in every subgame of a multistage game.

A subgame perfect Nash equilibrium is

Reduce Nathan's base salary and pay him a commission when payment is received from a client

Nathan is a recently hired Strome graduate at a Fortune 500 firm. His job responsibilities involve spending a significant amount of time outside the corporate office visiting business prospects. Which of the following is a strategy his manager could employ to encourage Nathan to work in the interests of the firm?

Decreases the present value of a future amount

When dealing with present value, a higher interest rate:

Moral Hazard

When managers of firms are given fixed salaries, which are not tied to the firm's profits, they generally put forth less effort than they otherwise would. This is an example of:

The auctioneer begins with a very high asking price

Which of the following is a feature of a Dutch auction? A.The auctioneer begins with a very high asking price. B.The winner pays the second-highest bidder's valuation. C.Bidders write their valuation in a paper simultaneously and separately. D.More than one bidder will announce their valuation.

Foregone Wages

Which of the following is an implicit cost of going to college? A.Tuition B.Cost of books and supplies C.Room and board D.Foregone wages

Given another player's strategy stipulated in that Nash equilibrium, a player cannot improve his welfare by changing his strategy

Which of the following is true for a Nash equilibrium of a two-player game? A.The joint payoffs of the two players are highest compared to other strategy pairs. B.Given another player's strategy stipulated in that Nash equilibrium, a player cannot improve his welfare by changing his strategy. C.A Nash equilibrium is always unique in real-world problems. D.Given another player's strategy stipulated in that Nash equilibrium, a player cannot improve his welfare by changing his strategy, and a Nash equilibrium is always unique in real-world problems.

Lead to an increase in demand for B

If A and B are complementary goods, a decrease in the price of good A would:

Increase Q

If marginal benefits exceed marginal costs, it is profitable to:

The maximum legal price that can be charged in a market

Price ceiling is

Moral hazard

After a person buys insurance for his car, he will generally not care for his car as much as he otherwise would. This is an example of:

75

An apple farmer must decide how many apples to harvest for the competitive world apple market. He knows that there is a one-third probability that the world price will be $1, a one-third probability that it will be $1.50, and a one-third probability that it will be $2. His cost function is C(Q)=0.01Q^2. The expected profit-maximizing quantity is:

Decrease

An increase in the marginal cost arising from a more complex specialized investment environment will cause the optimal contract length to:

For each firm to advertise

Consider the following information for a simultaneous move game: If you advertise and your rival advertises, you each will earn $5 million in profits. If neither of you advertises, you will each earn $10 million in profits. However, if one of you advertises and the other does not, the firm that advertises will earn $15 million and the non-advertising firm will earn $1 million. If you and your rival plan to be in business for only one year, the Nash equilibrium is:

the marginal cost of producing one output is reduced when the output of another product is increased.

Cost complementarity exists in a multiproduct cost function when:

The price of the good

Demand shifters do not include

Rise

Despite a 20 percent drop in the average selling price of its line of phones, a major smartphone manufacturer's product shipment increased by 80 percent. Given this information, we would expect the company's revenue to:

$270

During spring break, students have an elasticity of demand for a trip to Florida of −3. How much should a monopolistically competitive airline charge students for a ticket if the price it charges the general public is $360? Assume the general public has an elasticity of −2.

Adverse Selection

Flood insurance is required by federal regulations for structures either partially or completely located in a Special Flood Hazard Area and with a mortgage backed by federal programs such as Fannie Mae and Freddie Mac. Homeowners without a mortgage are not required by law to buy flood insurance. In Virginia, 69% of the houses within Special Flood Hazard Area do not have flood insurance policies. The above discussion is most related to the problem of

All of the statements associated with this question are correct

In order to reduce the undesirable effects of moral hazard, an insurance company can: A.introduce a deductible. B.classify clients into different types according to their history. C.increase the premium for the renewal of policies of those people with really bad records. D.All of the statements associated with this question are correct.

She should toss a coin

Jane wants to buy a beautiful doll as a gift for her sister's birthday. She knows that the same product is offered in different shops with prices of $120, $100, and $80 with odds of one-third of finding each price. She just stopped at a shop and knows that the price is $100. If the search cost is $8 per time, what should she do?

Adverse Selection

People with a bad driving record find it difficult to buy automobile insurance because insurance companies fear that ___________ may happen if they raise the premiums.

Above the supply curve and below the market price

Producer surplus is measured as the area

P3 and Q2

Refer to the figure. During low-peak times, what price-quantity combination should the firm charge to maximize profit?

Occurs because of specialized investments

Relationship-specific exchange:

100%

Suppose this one-shot game is infinitely repeated. What is the maximum interest rate that can sustain collusion?

$3.7 Million

Suppose you are a manager of a factory. You purchase five (5) new machines at $1,000,000 each. If you can resell two of the machines for $500,000 and three of the machines for $100,000, what are the sunk costs of purchasing the machines?

Relatively elastic

When a 1% change in price causes a change in quantity demanded greater than 1%, demand for the product is

Cross-subsidization

Snowpeak Ski Resort offers a price for a lift ticket that is barely over its marginal cost, but the high equipment rental fee keeps generating big profits. Which pricing strategy is the management using?

opportunism is not a problem

Spot markets are an efficient way for the firm to purchase inputs if:

-9

Suppose Q x d = 10,000 − 2 P x + 3 P y − 4.5M, where P x = $300, P y = $200, and M = $2,000. What is the income elasticity of demand?

-0.60

Suppose Q x d = 10,000 − 2 P x + 3 P y − 4.5M, where P x = $300, P y = $200, and M = $2,000. What is the own price elasticity of demand?

An increase in the demand for good A

Suppose good A is an inferior good. When the U.S. economy was first hit by the COVID-19 pandemic, a lot of people lost their jobs and income, leading to:

Price and quantity should have both increased

Suppose good A is an inferior good. When the U.S. economy was first hit by the COVID-19 pandemic, a lot of people lost their jobs and income. Ceteris paribus, what do you think should have happened to price and quantity for good A?

There will be a shortage of 20 units

Suppose market demand and supply are given by Q d = 100 - 2P and Q S = 5 + 3P. If a price ceiling of $15 is imposed,

None of the statements associated with this question are correct

Suppose that supply increases and demand decreases. What effect will this have on price and quantity?

Unitary elastic

Suppose the demand for a product is 〖lnQ〗X^d=10-lnP_X then product X is

goods Y and X are complements

Suppose the demand for good X is given by Q_X^d=10-2P_X-3P_Y+4M. Then:

-0.417

Suppose you compete in a Cournot oligopoly market consisting of six firms. The equilibrium market price and quantity are $5 and 10 units, respectively. The marginal cost for each firm is $3. Based on this information, we know the price elasticity of the market demand is:

True

T/F: For a finitely repeated game with uncertain final period, collusion is likely

Signaling

The Department of Transportation certifies motorcycle helmets, and all helmets certified carry a "DOT" logo. This is an example of

Moral Hazard

The National Flood Insurance Program, managed by the Federal government, provides flood insurance at below-market rates. Some argue that: "While there is an imperative for the government to provide assistance in time of crisis, that assistance may change behavior; policies designed to limit risk may actually prolong or increase risk." The above discussion is most related to the problem of

Increase by 24.5 Percent

The cross-price elasticity of demand between goods X and Y is −3.5. If the price of X decreases by 7 percent, the quantity demanded of Y will:

A perfectly elastic good

The demand curve for a good is horizontal when it is:

-0.6

The demand for good X has been estimated by Q_X^d=12-3P_X+4P_Y. Suppose that good X sells at $2 per unit and good Y sells for $1 per unit. Calculate the own price elasticity.

(5,5)

The figure presents information for a one-shot game. Suppose this one-shot game is infinitely repeated. The collusive (cooperative payoffs of the players will be _____ each period.

Marginal benefit and the marginal cost of playing games

The optimal amount of playing games is determined by comparing:

It will increase 6%

The own-price elasticity of demand for apples is -1.2. If the price of apples falls by 5%, what will happen to the quantity of apples demanded?

Transfer prices must be set that maximize the overall value of the firm rather than the profits of the upstream division

To circumvent the problem of double marginalization:

Expected marginal revenue equals marginal cost

To maximize profit in the face of uncertainty, firms should produce the output where:

Produce the quantity that sets marginal revenue equal to marginal cost

To maximize profit, a monopolist must _________.

prisoner's dilemma game in which players act in rational, self-interested ways that leave everyone worse off

Two executives were arrested by authorities. Short of a confession, the prosecutor only had enough evidence to put them away for 10 years. Given a confession, however, she was certain to put them behind bars for life without parole, since they killed a law enforcement officer who was investigating the case. The prosecutor put the two prisoners in separate rooms and told them the following: "If you confess and your partner does not, I'll give you a year's probated sentence but put your partner in the slammer for life without parole. Of course, if your partner confesses and you don't, you'll get the life sentence without parole and he'll get one year's probation. I must warn you, however, that if you both confess, I'll have enough evidence to put you both away for life without parole. This scenario is known as the

(S1, T1)

What are the Nash equilibrium strategies for firm 1 and 2 respectively?

Price matching and randomized pricing

What group of policies aims at discouraging rivals from starting a price war?